15 ms·

Does anyone think that when the crypto bubble bursts, that will cause a stock market level crash?

RandomInteger4 9y ago
It depends on how big the derivatives market for cryptocurrencies is; i.e. how much is leveraged in bets related to cryptocurrencies.
alabamabill 9y ago
:) , why would that happen?
SirLJ 9y ago
A+... this is like a geek storm in a glass of water... the average investor will not be harmed at all...
- terminado 9y ago
  I try to think of crypto-currencies, and their collectors as a class not unlike POG collectibles and POG collectors. The age bracket associated with each probably experiences significant overlap too, so the idea seems fitting. Taken to extremes, if any given POG collector suddenly went bankrupt, due to a crash in values in the POG collector's price guide, how many people are associated with a particular POG collector? Would they notice, when that POG collector's business failed, because of an inability to meet obligations, now that all POG collections are worthless? If banks and businesses accept The POG as legal tender, how many transactions disappear with the POG craze, leaving them unpaid, or stuck holding worthless assets?
  - jpatokal 9y ago
    "POG"?
    - terminado 9y ago
      https://en.wikipedia.org/wiki/Pogs https://en.wikipedia.org/wiki/Pogs namesake of https://en.wikipedia.org/wiki/POG_(drink) https://en.wikipedia.org/wiki/POG_(drink)
    - Haydos585x2 9y ago
      Milhouse: I'm really sorry... I kind of traded your soul to the guy at the comic book store. But look! I got some cool pogs: [shows them] Milhouse: Alf pogs! Remember Alf? He's back... in pog form! https://www.reddit.com/r/OutOfTheLoop/comments/3dyh6j/what_is_alf_is_back_in_pog_form_come_from_and/ctakvyo/ https://www.reddit.com/r/OutOfTheLoop/comments/3dyh6j/what_i...
olavgg 9y ago
Not really, but the crypto currency community looks like a pyramid scheme. First users gets most of the coins.
- isubkhankulov 9y ago
  its actually closer to a multi level marketing scheme, so only slightly less shady. but hey bitcoin works, the others? like gnosis, not so much
- krabpaaltje 9y ago
  First users also have the risk of their investment becoming worthless.
  - tveita 9y ago
    All the users risk their 'investment' becoming worthless, that is not a risk exclusive to first users.
    - oculusthrift 9y ago
      yeah but it obviously takes less risk to invest in Apple in 2015 than 1978
- product50 9y ago
  Do you have any idea what is going on here or are you ignoring away in bliss? This is as much a pyramid scheme as VC industry is in that early investors make disproportionate gains (and losses). Finding the right tokens to invest in is the challenge.
  - khazhoux 9y ago
    Only disproportionate gains, not losses. When a startup goes bust, every investor can only lose what they put in. No one loses multiples on their investment.
throwaway9980 9y ago
I have had multiple affluent friends who are absolutely non-tech non-geek ask me what are the hot coins. They're shoveling tens of thousands of dollars into Bitcoin, Ethereum, and Ripple based entirely on the fact that there's a run up happening. They have no understanding of what it is and the intention is sell to the greater fool after another 10x move. Maybe it isn't a bubble, but it sure does walk like a duck and talk like a duck.
- prostoalex 9y ago
  Tens of thousands of dollars can be shovelled into low-probability high-risk outcomes nightly at a single Vegas table, of which there are many, at a single casino, of which there are many. The state lottery jackpot can swell by tens of millions of dollars in a single day when the potential payout reaches nine digits. This is just high-stakes gambling, it's not a systemic bubble until pension funds, university endowments or state sovereign funds get significant exposure.
  - lsseckman 9y ago
    this is a great point. And given market caps I doubt there are any sizeable funds invested, which may point to no bubble at all.
- loblollyboy 9y ago
  are these guy all gonna sell at 10k? I'm not rich and love the idea of BTC, but the gambler in me is looking to 10k - mainly b/c I think thats what the ppl with real money on the table are looking to
  - dennyis 9y ago
    Please do yourself a favor and invest in other things too. I'm also a bitcoin believer, but it's a relatively small part of my holdings, which are mostly in real estate.
cbanek 9y ago
It's entirely possible it might be the catalyst for a large unwinding. Let me just set up a hypothetical scenario: Bitcoin prices begin to unwind (trigger: emotion? unknown unknown?). Chinese holders of bitcoin, who have been using them to get out of the yuan and avoiding capital regulations, start selling, accelerating the problem. Chinese WMPs (wealth management products) that may hold bitcoin start to default or go under, accelerating the deflation of the current Chinese debt and borrowing bubble. Global market contagion risk from China causes markets to rethink what is going on? The US has been calling for a correction for months, and the VIX is stubbornly low. Central banks have interest rates very low but are trying to tighten, and if they tighten into weakness it might cause a recession.
- prostoalex 9y ago
  How many Chinese buyers of BTC are buy-and-hold investors into BTC itself versus just using cryptocurrency as a transfer mechanism for real estate, commodities or fiat currency investments?
- stult 9y ago
  I'd say the causality is more likely to go in the opposite direction. A slowdown in China provokes a slowdown in capital flight via crypto which triggers the crash. It might actually be the canary in the coal mine of a global recession. Barring significant positive reform in Chinese capital markets as an alternative explanation, I am going to start getting scared when I see a crash in the Vancouver, BC real estate market coinciding with a crypto crash.
  - rayuela 9y ago
    I think a slowdown in China would actually accelerate capital outflows and further inflate crytocurrency valuations.
    - stult 9y ago
      I would expect to see a surge and then a rapid drop off, but I think we've been in the surge for a while now. The surge reflects people not having faith in native Chinese markets, which has already been the case for most well-off, well-informed Chinese. They know their stock markets are a joke and that the government has been driving investment toward pointless building projects. The real estate market has been irrationally exuberant, in no small part because of the absence of alternative long-term savings vehicles such as interest bearing accounts or a reliable stock market. They also don't have complete faith in their government's respect for property rights and know having the option to flee abroad if things go south is invaluable. And the PRB has been slowly ratcheting down the markup they pay on US dollars as an export subsidy, so the incentive to convert US dollars to renminbi relative to offshoring earnings via bitcoin or other channels has been declining over the past few years. Just to clarify what I mean because a lot of people don't realize this, but many Chinese exporters receive payment for goods in US dollars (or other foreign currency). The People's Republic Bank of China (their central bank) purchases those dollars with renminbi at a markup over the fair market value, basically giving the Chinese exporters a subsidy. That's part of why the PRB has such enormous US Treasury holdings. They bought so many US dollars that they couldn't invest them in anything other than US Treasuries. A billion dollars in cash is an asset. A trillion is an unmanageable inflation risk. The PRB has been trying to move away from that model because they know it isn't long-term sustainable. So as that implicit subsidy declines, Chinese manufacturers receiving US dollars find alternative methods for converting their excess currency, such as BTC or other foreign currencies (e.g. the Canadian dollar), relatively more attractive. The bottom line is that anyone who can afford to expatriate their capital has been doing so at the maximum viable rate for a long time now. A slowdown would simply reduce the amount that is available to expatriate, decreasing the US dollar -> BTC purchases and accelerating the BTC -> hard foreign assets such as real estate, reducing the total market cap for BTC. It's also possible the PRB might react to a slowdown by once again increasing the implicit export subsidy, which would divert funds from BTC transactions back into renminbi and further accelerate a crypto crash.

It depends on how big the derivatives market for cryptocurrencies is; i.e. how much is leveraged in bets related to cryptocurrencies.

alabamabill 9y ago

:) , why would that happen?

SirLJ 9y ago

A+... this is like a geek storm in a glass of water... the average investor will not be harmed at all...

terminado 9y ago
I try to think of crypto-currencies, and their collectors as a class not unlike POG collectibles and POG collectors. The age bracket associated with each probably experiences significant overlap too, so the idea seems fitting. Taken to extremes, if any given POG collector suddenly went bankrupt, due to a crash in values in the POG collector's price guide, how many people are associated with a particular POG collector? Would they notice, when that POG collector's business failed, because of an inability to meet obligations, now that all POG collections are worthless? If banks and businesses accept The POG as legal tender, how many transactions disappear with the POG craze, leaving them unpaid, or stuck holding worthless assets?
- jpatokal 9y ago
  "POG"?
  - terminado 9y ago
    https://en.wikipedia.org/wiki/Pogs https://en.wikipedia.org/wiki/Pogs namesake of https://en.wikipedia.org/wiki/POG_(drink) https://en.wikipedia.org/wiki/POG_(drink)
  - Haydos585x2 9y ago
    Milhouse: I'm really sorry... I kind of traded your soul to the guy at the comic book store. But look! I got some cool pogs: [shows them] Milhouse: Alf pogs! Remember Alf? He's back... in pog form! https://www.reddit.com/r/OutOfTheLoop/comments/3dyh6j/what_is_alf_is_back_in_pog_form_come_from_and/ctakvyo/ https://www.reddit.com/r/OutOfTheLoop/comments/3dyh6j/what_i...

olavgg 9y ago

Not really, but the crypto currency community looks like a pyramid scheme. First users gets most of the coins.

isubkhankulov 9y ago
its actually closer to a multi level marketing scheme, so only slightly less shady. but hey bitcoin works, the others? like gnosis, not so much
krabpaaltje 9y ago
First users also have the risk of their investment becoming worthless.
- tveita 9y ago
  All the users risk their 'investment' becoming worthless, that is not a risk exclusive to first users.
  - oculusthrift 9y ago
    yeah but it obviously takes less risk to invest in Apple in 2015 than 1978
product50 9y ago
Do you have any idea what is going on here or are you ignoring away in bliss? This is as much a pyramid scheme as VC industry is in that early investors make disproportionate gains (and losses). Finding the right tokens to invest in is the challenge.
- khazhoux 9y ago
  Only disproportionate gains, not losses. When a startup goes bust, every investor can only lose what they put in. No one loses multiples on their investment.

throwaway9980 9y ago

I have had multiple affluent friends who are absolutely non-tech non-geek ask me what are the hot coins. They're shoveling tens of thousands of dollars into Bitcoin, Ethereum, and Ripple based entirely on the fact that there's a run up happening. They have no understanding of what it is and the intention is sell to the greater fool after another 10x move. Maybe it isn't a bubble, but it sure does walk like a duck and talk like a duck.

prostoalex 9y ago
Tens of thousands of dollars can be shovelled into low-probability high-risk outcomes nightly at a single Vegas table, of which there are many, at a single casino, of which there are many. The state lottery jackpot can swell by tens of millions of dollars in a single day when the potential payout reaches nine digits. This is just high-stakes gambling, it's not a systemic bubble until pension funds, university endowments or state sovereign funds get significant exposure.
- lsseckman 9y ago
  this is a great point. And given market caps I doubt there are any sizeable funds invested, which may point to no bubble at all.
loblollyboy 9y ago
are these guy all gonna sell at 10k? I'm not rich and love the idea of BTC, but the gambler in me is looking to 10k - mainly b/c I think thats what the ppl with real money on the table are looking to
- dennyis 9y ago
  Please do yourself a favor and invest in other things too. I'm also a bitcoin believer, but it's a relatively small part of my holdings, which are mostly in real estate.

cbanek 9y ago

It's entirely possible it might be the catalyst for a large unwinding. Let me just set up a hypothetical scenario: Bitcoin prices begin to unwind (trigger: emotion? unknown unknown?). Chinese holders of bitcoin, who have been using them to get out of the yuan and avoiding capital regulations, start selling, accelerating the problem. Chinese WMPs (wealth management products) that may hold bitcoin start to default or go under, accelerating the deflation of the current Chinese debt and borrowing bubble. Global market contagion risk from China causes markets to rethink what is going on? The US has been calling for a correction for months, and the VIX is stubbornly low. Central banks have interest rates very low but are trying to tighten, and if they tighten into weakness it might cause a recession.

prostoalex 9y ago
How many Chinese buyers of BTC are buy-and-hold investors into BTC itself versus just using cryptocurrency as a transfer mechanism for real estate, commodities or fiat currency investments?
stult 9y ago
I'd say the causality is more likely to go in the opposite direction. A slowdown in China provokes a slowdown in capital flight via crypto which triggers the crash. It might actually be the canary in the coal mine of a global recession. Barring significant positive reform in Chinese capital markets as an alternative explanation, I am going to start getting scared when I see a crash in the Vancouver, BC real estate market coinciding with a crypto crash.
- rayuela 9y ago
  I think a slowdown in China would actually accelerate capital outflows and further inflate crytocurrency valuations.
  - stult 9y ago
    I would expect to see a surge and then a rapid drop off, but I think we've been in the surge for a while now. The surge reflects people not having faith in native Chinese markets, which has already been the case for most well-off, well-informed Chinese. They know their stock markets are a joke and that the government has been driving investment toward pointless building projects. The real estate market has been irrationally exuberant, in no small part because of the absence of alternative long-term savings vehicles such as interest bearing accounts or a reliable stock market. They also don't have complete faith in their government's respect for property rights and know having the option to flee abroad if things go south is invaluable. And the PRB has been slowly ratcheting down the markup they pay on US dollars as an export subsidy, so the incentive to convert US dollars to renminbi relative to offshoring earnings via bitcoin or other channels has been declining over the past few years. Just to clarify what I mean because a lot of people don't realize this, but many Chinese exporters receive payment for goods in US dollars (or other foreign currency). The People's Republic Bank of China (their central bank) purchases those dollars with renminbi at a markup over the fair market value, basically giving the Chinese exporters a subsidy. That's part of why the PRB has such enormous US Treasury holdings. They bought so many US dollars that they couldn't invest them in anything other than US Treasuries. A billion dollars in cash is an asset. A trillion is an unmanageable inflation risk. The PRB has been trying to move away from that model because they know it isn't long-term sustainable. So as that implicit subsidy declines, Chinese manufacturers receiving US dollars find alternative methods for converting their excess currency, such as BTC or other foreign currencies (e.g. the Canadian dollar), relatively more attractive. The bottom line is that anyone who can afford to expatriate their capital has been doing so at the maximum viable rate for a long time now. A slowdown would simply reduce the amount that is available to expatriate, decreasing the US dollar -> BTC purchases and accelerating the BTC -> hard foreign assets such as real estate, reducing the total market cap for BTC. It's also possible the PRB might react to a slowdown by once again increasing the implicit export subsidy, which would divert funds from BTC transactions back into renminbi and further accelerate a crypto crash.